There are two reasons why the Bank of England might hold rates on Thursday. Firstly, due to the banking crises and, secondly, due to inflation expected to fall rapidly in the UK.

The SVB and Credit Suisse crises may, in their own right, cause the Bank of England to err on the side of caution. The fear is one of contagion and the worry that there will be a domino effect of other banks collapsing. So far, those fears have not materialised but they are still out there. Much will depend on the run-up to the decision. Fresh banking worries before the decision will probably be enough to cause the bank to keep on hold.

Inflation is set to fall below 10% again in the UK to 9.9%. This is down from the 11.1% high from last October.

The core reading is due to fall down to 5.7% from 5.8% and that is down from October’s high of 6.5%. Disinflation is at work in the UK and, as many start to pay higher mortgage rates, inflationary pressures are being removed from the UK economy. The BoE will take confidence from this that it could slow the pace of rates a little.

The case to hike rates?

If the BoE perceives that the banking crisis is contained and is unconcerned about contagion risks then another hike could be in order to really help cement the disinflationary forces starting to work. Some Goldman Sachs forecasters even expect UK inflation to be below the BoE’s target by the end of the year.

The vote split

At the last rate meeting, both Dhingra and Tenreyo voted for no rate change. So, we can expect them to be on hold too. The others all voted for a rate hike of 50bps. Mann is a keen hawk and could be expected to go for a hike but the others are a harder group to call. The Chief UK economist at Pantheon Macroeconomics Samuel Tombs, expects the MPC to vote 6-3 in favour of keeping the bank rate at 4%.

If the BoE does decide to stay on hold and stress contagion fears then watch for a potential EURGBP upside out of the event.